Nokia CEO faces fallout after switch to Microsoft

BARCELONA, Spain — Investors have panned his shake-up strategy and employees are rankled. Now, Nokia Corp.’s Stephen Elop, the first non-Finn to lead the world’s largest maker of phones, is in a hurry to justify his decision to ditch the company’s smart-phone software in favor of a former employer’s – Microsoft.

He has a lot of ground to cover.

Additional Photos

Nokia CEO Stephen Elop speaks with reporters Monday at the Mobile World Congress in Barcelona, Spain. The Associated Press

Nokia’s stock, which lost 14 percent after the Microsoft deal was announced Friday, fell by more than 5 percent Monday. Nokia employees showed their displeasure with the software switch on Friday, using flex time to head home en masse.

Elop presented his case, to both investors and employees, at the world’s largest cell-phone trade show, which opened Monday in Barcelona.

In a message to investors, Elop said Sunday that the deal means billions of dollars for Nokia from Microsoft, in addition to benefits like lower software development costs.

Elop, who is Canadian, discussed employee reactions during an interview with The Associated Press.

“Every employee goes through an emotional journey, and the emotional journey is difficult, because this is such a big change,” he said. “I’ve had four and a half months to go through my emotional journey, ending up in a very different position from what I had assumed when I first joined.”

Nokia has been losing market share to Apple Inc., Google Inc. and others that have moved aggressively into the smart-phone market.

The company’s worldwide market share in smart phones was just over 30 percent in the fourth quarter, down from 40 percent a year earlier. It’s still the biggest maker of nonsmart phones, but everyone in the industry believes smart phones are the future.

The shift has been so drastic that Elop, in a memo leaked last week, compared the company to a burning oil platform, asking employees to jump off of it with him in search of a safer place.

The memo had industry analysts talking.

“Nokia has jumped into the icy water from the burning platform, but we are not sure when the lifeboat is going to turn up, and the water appears to be infested with predators,” said analyst Richard Windsor of Nomura Securities.

Microsoft Corp. launched a new phone operating system, Windows Phone 7, late last year. Reviewers hailed it as big improvement over previous attempts, but so far it hasn’t made a dent in the dominance of Google’s Android software and Apple’s iPhone.

Windsor expects Android to snap up the market share that Nokia might lose while it phases out Symbian. Nokia has said it might start selling a Windows phone this year, but it isn’t promising anything.

One competitor, Sony Ericsson CEO Bert Nordberg, said that he was “very happy” that Nokia chose Microsoft rather than Android. If Nokia had entered the same space, it would have created enormous competition and pricing pressure.

Sony Ericsson ditched Symbian last year in favor of Android, and the strategy has met with modest success. On Sunday, Nordberg announced that Verizon Wireless would carry a Sony Ericsson phone for the first time in years.

Elop said that he and other Nokia executives felt that adding Nokia’s production capacity to an already crowded field of Android phones would have forced prices down too sharply.

“We also believe firmly that creating a three-horse race was also in the best interest of consumers. It gives them more choice,” Elop told the AP.

Nokia also had more to give Microsoft than it had to give Google, Elop said. Its location and mapping services complement Microsoft’s Web search services. Google already has broad backing for Android, so it may not have been as willing to pay Nokia to switch as Microsoft was.

Analysts are now speculating that the phone makers that have supported Windows Phone 7, HTC Corp. and LG Electronics Inc., might be less inclined to do so with a giant like Nokia jumping into the game, supported by billions in Microsoft subsidies.

In his keynote speech Monday at the trade show, Microsoft CEO Steve Ballmer rebutted that suggestion.

“Nokia’s support will help Windows Phone overall to build strength versus other mobile platforms,” Ballmer said. “That’s not just good for Nokia, that’s good for all our handset partners.”

Ballmer also demonstrated some of the improvements that are coming to Windows Phone 7 this year. They include a faster Web browser and quicker switching between applications.

Shares of Nokia fell 52 cents, or 5.6 percent, on Monday to close at $8.84.

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